H.R. 1 Is Now Law: What Employers Need to Know About the 2025 Tax Changes in the One Big Beautiful Bill

H.R. 1 Is Now Law: What Employers Need to Know About the 2025 Tax Changes

On July 4, 2025, President Trump signed into law H.R. 1—the Tax Relief for American Families and Workers Act of 2025. While it’s often referred to by its nickname, the “One Big Beautiful Bill,” the law itself includes important tax and payroll provisions that every employer should understand.

Some provisions are retroactive to January 1, 2025, but no formal guidance has been issued by the IRS yet. Until then, employers are not required to make any changes. This blog breaks down what’s in the bill, what might change, and how to stay prepared.

What’s Included in H.R. 1?

The bill contains a mix of tax adjustments for individuals and businesses. For employers, the most relevant provisions include:

Tax-Free Tips and Overtime — But Only for Employee Tax Returns

Employees may now deduct up to:

• $25,000 in tips
• $12,500 in overtime premium pay ($25,000 if filing jointly)

However, these are deductions claimed on the employee’s federal tax return. They do not affect employer tax withholding or gross wage reporting.

What This Means for Employers:
No changes to payroll setup or withholding are needed. Wages should still be taxed and reported as usual until IRS guidance says otherwise.

New W-2 Reporting Requirement

Employers will soon be required to separately report overtime premium pay on Form W-2, starting with 2025 wages.

What This Means for Employers:
This is a change to how wages are reported—not how they’re paid. Employers will need to ensure payroll systems can isolate and track overtime premiums for year-end reporting.

Higher 1099 Reporting Threshold

Beginning in 2026, the threshold for issuing a 1099-NEC or 1099-MISC will increase from $600 to $2,000.

What This Means for Employers:
This change will apply to vendor payments starting in 2026 and may require updates to your contractor tracking and year-end processes.

When Do These Changes Take Effect?

• The tip and overtime deductions apply retroactively to January 1, 2025.
• The new Form W-2 reporting requirement is expected to begin with 2025 tax year filings.
• The updated 1099 threshold kicks in for calendar year 2026.

But here’s the key: no implementation details have been released yet by the IRS or Treasury Department. Until that happens, employers are not required—or advised—to make any changes.

What Should Employers Do Now?

• Keep your payroll processes and systems as they are.
• Start identifying how you track overtime, in preparation for new W-2 requirements.
• Monitor for official IRS updates, expected later this summer or fall.

Want to Stay Ahead Without the Headaches?

Tax law changes like H.R. 1 can create a ripple effect in payroll, reporting, and employee communication. If you're looking for a clearer, more reliable way to navigate what’s next—without adding more to your plate—let’s talk.